Why My Husband and I Bought a Boat and not a House

My husband and I own eight houses which are all currently rentals purchased bought in the past five years. We own in three states; CA, SC and VA, and I self manage all of our rentals from all around the world (check out my adventure in self manning while in Fiji.) All of my buddies would tell you that I gleefully look forward to each new duty station as it is an excuse to purchase our next personal property, meaning I get another rental at 5% down instead of 25% as a rental.

Yet, we bought a boat and not a house at our current duty station, NAS Whidbey.

Why?

The simple truth: buying a house at NAS Whidbey was a stupid financial move and we don’t buy stupid!

The reality is when you move as much as we do, five duty stations in 6.5 years of marriage, you are not buying a forever home. A forever home is a house you buy and live in until you die and never care about the resale or rent ability. All you care about is if YOU can afford the monthly payments. The reality is as a military family we do not have this luxury. Truthfully, neither do most Americans. As life happens, people get promoted, transferred, divorced, and finally, people want to upgrade. The reality is that most people need to think about buying a home as a financial asset or liability, all of which are determined based on how you buy.

If the house is a liability, you lose money every month. You never want to move as it is a drain and will cost you money every month. If it is an asset, it adds money to your pocket every month. The sooner you move out the sooner you can cash in on the equity if its appreciation, or make a ton of money on it as a rental, depending on the market.

As I discussed in case study number 4, when we bought in Hanford, CA in 2013 when my husband was stationed at NAS Lemoore, we saved almost $450 a month when comparing buying versus renting. If we had bought in April, 2016 at NAS Whidbey, we would have saved $0 buying. If anything, we would have saved money renting, since buying was so expensive. As I discussed in, “We ditched Base Housing for a Sailboat and Marina,” renting was not an option due to to life goals and our adorable three kitties.

The point is: BUYING DOESN’T ALWAYS MAKE SENSE.

The time to buy is not when it’s hot and everyone is making tons of money. That is a seller’s market. One should buy when the market makes sense, aka the exit plan is an asset, not a liability. The decision on whether a market makes sense should be made on CONCRETE market data. Not on some flimsy sales pitch, because the reality is when it makes sense it’s usually the time that the market has crashed and the belief in the market as a mass is low.

Remember when I said, I won’t buy stupid? This is stupid! (Yes, this is a real post I saw!)

When I saw this post I honestly went red-head postal because this is the worst idea ever. An investor with five years of experience, eight rental houses and a love for self-managing, went from a 2,050 sqft house to a 42ft boat because the market didn’t make sense, yet people wouldn’t buy in the downturn when it was a buyers market and houses were practically being given away with VA, FHA and conventional loans. These same people wouldn’t buy because it “didn’t make sense,” but the house would have rented out for a 300-500 profit after mortgage, taxes and insurance were paid with a 0 – 5% downpayment. Yet we see people scrambling to buy a house now because “home sales and condo sales strong well into 2020?” Yet they will have to be at a -300 to -400 if they ever have to rent out their house.

The worst part is I see people say all the time “renting is too expensive so I will buy.” Then they buy with no exit plan, and in my opinion, over-inflated houses. Which is justified when houses won’t rent for more than their mortgage.

Let’s talk exit plan and buying smart.

While I love Paula Pant and agree with many of her teachings, I don’t agree with her article “Why the One Percent Rule Matters,” because I feel that one should look at ALL the numbers and not just 1% of the house value. 1% rules is the idea that a $100,000 house should rent for $1,000. Two of my eight houses have followed this rule and guess which two houses have the highest taxes, insurance, HOA fees and lowest profit? They have the biggest pain in the butt HOA and are honestly the most work regarding turnover, etc., because they are starter homes. Guess which two houses will be 1031 as soon as they meet their goals because I am over the investment properties? Yup, the same 2 houses.

Yet the other six houses that we have that do not follow the 1% rule, because they are close to .7/.8, are awesome. The numbers are great, they are making me tons of money, and I don’t see them selling any time soon! The key is to look at ALL the expenses. The other six houses are located in areas with VERY low escrow taxes. So while the rent is lower in comparison to the sales price, I get to keep more profit.

I totally 100% agree with Paula Pant’s general premise.

You have to buy smart, not stupid!!

Let’s first talk stupid! : What are stupid Exit Plans?

I am going to buy this house and it will appreciate 30% more in one year and then I will sell it. Can anyone say 2008?

I honestly am flabbergasted that people still think this is a plan. I thought the most recent housing crash would have cured us of this idea

Now: Let’s talk SMART Exit Plans!

There are tons of ways to skin the cat. Here are two ways of many:

First Way: Buy and Flip

Some people like to buy long terms flips: They buy significantly under-valued properties that add tons of sweat equity, common sense, and a little luck (for example, not having the market drop out on you!) to make a large profit when they are transferred. Therefore they are not worried about Rent values as they will sell it.

Personally, this is not my gig, as you can get stuck with a house you can’t sell if the market changes. For me that is too risky. Don’t believe me, check out Mr. Money Mustache’s experience with his second flip, he so eloquently titles it “The Big Mistake”.

Please note that it is not a true flip story but a spec house built from scratch. The reason why I used it is it illustrates that market chance can occur for properties held over time.

Second Way: Rentals

I am totally bias and will tell you that this is our safety net. When we entered the market in 2013 in Hanford, CA, people lost their shirt. The only way to buy in our price range was to buy a short sale. There were no other choices. During my 13 months of unemployment, I did a little case study on the Hanford area. I used BAH rates as my constant, and said if I could always rent my house for at least $200 more than my mortgage I would have been safe.

The answer was YES, because we wouldn’t have bought during the period that everyone bought and lost the shirt. The reason why, rent was way cheaper than buying, so based on our model it didn’t make sense. It’s the same model that we used to determine that buying was not smart to buy in Whidbey.

My plea to you, is: buy SMART!

Owning real estate, and later rental properties, can be the biggest asset to your financial plan. Thanks to our real estate I have a portable career that I can do from anywhere. Real Estate allows me the flexibility to live my life MY way while making more than my corporate job and significantly improving our Financial Wealth.

YET, it can also be destruction. So please don’t buy stupid!!

Buy an asset that will weather the long-term ups and downs of the housing economy. One that will be an asset for years to come. Not one that makes you truly reluctant, miserable, and turns you off to buying again.

Because I promise you, if you buy just ANYTHING because “HOUSE PRICES ARE JUMPING CRAZY AND IF I BUY NOW I WILL MAKE 30% IN TWO YEARS” you will regret it!

So please be like us, know your market, pay attention and be willing to make other arrangements if buying doesn’t make sense.

While owning a boat was not my 2016 year plan, it was the smart thing to do financially. An added bonus is it added a new adventure, that you won’t miss if you sign up for our newsletter and follow the adventure.

I love my family, my country and real estate. My goal is to retire early through frugal living and real estate investment. I am making great strides and want to share the information I've learned through the process. Read More...